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For many investors, the main point of stock picking is to generate higher returns than the overall market. But if you try your hand at stock picking, you risk returning less than the market. Unfortunately, that's been the case for longer term Fabasoft AG (ETR:FAA) shareholders, since the share price is down 45% in the last three years, falling well short of the market decline of around 4.3%. And more recent buyers are having a tough time too, with a drop of 24% in the last year. On the other hand, we note it's up 9.1% in about a month. But this could be related to good market conditions, with stocks up around 8.4% during the period.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
See our latest analysis for Fabasoft
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the unfortunate three years of share price decline, Fabasoft actually saw its earnings per share (EPS) improve by 9.8% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.
It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.
The modest 0.6% dividend yield is unlikely to be guiding the market view of the stock. We note that, in three years, revenue has actually grown at a 16% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching Fabasoft more closely, as sometimes stocks fall unfairly. This could present an opportunity.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We know that Fabasoft has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Fabasoft
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Fabasoft the TSR over the last 3 years was -41%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.